IRS-1 is a principal substrate of the insulin and IGF-1 receptor tyrosine kinases. It undergoes multisite tyrosine phosphorylation and associates with signaling molecules which contain Src homology-2 domains (SH2- proteins). The second IRS-signaling protein (4PS) was purified and cloned from myeloid cells where it is required for IL-4 signaling. Alignment of 4PS, redesignated as IRS-2, with IRS-1 reveals two distinct functional regions: a poorly conserved COOH-terminus with multiple common and unique tyrosine phosphorylation motifs, a highly conserved NH-2 terminus containing a pleckstrin homology (PH) domain and a phosphotyrosine binding (PTB) domain which mediates receptor coupling. IRS-2 is expressed with IRS-1 in many cells and tissues, but predominates in hematopoietic cells where it may be required for a normal immune response. Cotransfection of waf1 together with H-ras or a number of other oncogenes into NIH/3T3 cells potently inhibited the formation of transformed foci. Overexpression of p21-Waf1 also reduced the ability of H-Ras-transformed NIH/3T3 cells to form colonies in soft agar. Transient transfection of waf1 into NIH/3T3 cells inhibited H-Ras-induced transcription from a E2F- responsive element but not from a serum-responsive element, suggesting that p21-Waf1 suppresses transformation by inhibiting E2F-driven transcription of S phase genes. Paradoxically, H-ras and several other oncogenes activated the waf1 promoter in transient transfection assays. In contrast, c-myc and E2F dramatically downregulated the waf1 promoter and antagonized its activation mediated by H-Ras or p53, providing a potential molecular explanation for the cooperation between ras and myc oncogenes in transformation and suggesting a possible mechanism by which E2F and c-Myc overcome p53-induced growth arrest. NIH/3T3 cells transfected with waf1 underwent adipocytic differentiation in nutrient- limiting conditions, providing a direct relationship between p21-Waf1 expression and growth arrest-linked differentiation. These results indicate that p21-Waf1 plays a central role in the regulation of cell transformation and differentiation.